I’ve just finished reading The Man Who Knew: The Life and Times of Alan Greenspan, by Sebastian Mallaby. It is, without doubt, the most personally and professionally relevant biography I’ve read in many years. You may remember that Dr. Greenspan was Chairman of the Federal Reserve Board and the Federal Open Market Committee from 1987 … Read more Principles and Observations

Originally published in Flourishing September 2007. It has been six years since Islamic terrorist hijackers flew two commercial jetliners into the World Trade Center towers in New York City, and another into The Pentagon. They were thwarted by heroic passengers in their attempt to fly a fourth jetliner into the U.S. Capital Dome. We must … Read more Ad Astra Per Aspera

Originally Published in Flourishing July/August 2010 “To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to … Read more Jefferson’s First Principle of Association

Originally Published in eFlourishing Issue 10, May 30, 2010 There is nothing new under the sun, but the history you don’t know; or in my case, the genealogy. One of the oldest Indian reservations in North America is reserve land granted to the Schaghticoke Indians (descendants of the Mohicans) in the year 1736 by the General … Read more The Last of the Mohicans, Almost

Month: October 2010

But we do. Last Thursday, the Commerce Department announced that as a percentage (39%) of the growth in our Gross Domestic Product (5.9% in 4Q2009), goods exported from the US hit a thirteen-year high in 4Q2009. But wait! That’s not the good news, which is that the US is still – far and away – the number one manufacturer in the world, producing more than 20% of global output in 2009. China was number two at 12%, Japan was number three at 10%, Germany was number four at 7%, and no other country contributed more than 4% of global manufacturing output. (All data from “Made in America”, LPL Weekly Market Commentary by Jeffrey Kleintop dated March 15, 2010)

Just look at what we produce. While China produces toys and Japan produces cameras, the US produces and exports technical and machine tools, medical equipment, computer software, pharmaceuticals, commercial airplanes, defense products, satellites, and myriad other high-value-per-unit products.

Let others have their cheap labor. These high-value-per unit products tell us that our most important comparative advantages are a prodigious pool of intellectual talent and an ocean of invested capital – each the result of two hundred years under a (relatively free) capitalist system. Our comparative advantages are not easily duplicated. I believe our greatest threats are not overseas sweat shops and call centers, but restrictions of free trade and government-enforced price controls. Sorry; I do digress.

Old Europe and Japan are stuck in the muck of semi-socialism, as fourth quarter annualized Gross Domestic Product was less than 1%. Will they ever learn? More than 50% of US exports go to emerging markets. Yes, China is an emerging market, but so are Brazil and India. Those are among the many countries we sell to that are experiencing high economic growth rates. We do want prosperous customers, do we not? (All data from “Made in America”, LPL Weekly Market Commentary by Jeffrey Kleintop, CFA dated March 15, 2010)

Here is the best news for investors: The S&P 500 companies derive more than 40% of their revenue from global markets. (“Made in America”, LPL Weekly Market Commentary by Jeffrey Kleintop, CFA date March 15, 2010) According to LPL Research, American business sectors with the highest rate of export-driven sales are – not surprisingly – Information Technology, Industrials, Materials, and Energy.

Despite Europe’s problems and our own currently high unemployment rate, The Global Capitalist Revolution is still growing – and in the long run – I feel it cannot be stopped. In my opinion, American manufacturing will remain an important contributor to worldwide economic progress and rising living standards for American workers.

There is nothing new under the sun, but the history you don’t know; or in my case, the genealogy.

One of the oldest Indian reservations in North America is reserve land granted to the Schaghticoke Indians (descendants of the Mohicans) in the year 1736 by the General Assembly of the Colony of Connecticut, forty years prior to the formation of the United States. As far as I know, the Schaghticoke do not run a casino. Still, they have my attention.

My great-grandfather, George Washington Harvey (1855 – 1939) was married to Mary Ann Winterbottom (1857- 1897); Mary Ann’s mother was Mary Jane Bearce (1836 – 1901). Her father was James Winterbottom, who was born in England in 1828.

Mary Jane Bearce was the daughter of Sarah Austin (1795 – 1880) and Eli Hervey Bearse (1793 – 1857). Here is the entry point of my interest in the Schaghticoke Indians:

Oliver Canfield* (1729 – 1818), part Schaghticoke himself, had a housekeeper named Sarah Mauwee (1732 – ?), daughter of Joseph Mauwee, a Sachem (chief) of the Schaghticoke Nation. Oliver and Sarah conceived a daughter, who they named Freelove. Yes, that was her real name. Freelove Canfield was born on Long Mountain, Connecticut in 1758. Oliver and his wife, Tabitha Roberts (1732 – 1818), raised Freelove, along with their other three children. Tabitha later moved to Somme, Picardie, France, which is where she died.

On March 27, 1789, Freelove Canfield was married to Josiah Bearse, III* (1755 – 1845). Josiah was also part Schaghticoke. Together, Josiah and Freelove had eleven children. One of those children was Eli Hervey Bearse.

The theory of “Peak Oil”, like the theory of “anthropogenic global warming”, is, I believe, factually unsustainable. Both theories conveniently discount the scope and effects of natural phenomena and the unlimited potential of the liberated human mind. Fortunately, as Mrs. Cunningham taught her history students nearly fifty years ago, the truth will out. According to a recent Gallup poll (http://www.gallup.com/poll/126716/Environmental-Issues-Year-Low-Concern.aspx) , the number of people who take “Global Warming” seriously has fallen to 28%. “Peak Oil” is headed for the dust-bin of science, too.

Oil production increased in the Gulf of Mexico and North Dakota last year. Those increases more than offset declines elsewhere in the U.S. for the first annual increase in U.S. oil production since 1991. The U.S. Energy Information Administration (EIA) reported in its March 2010 Short-Term Energy Outlook that U.S. oil production in 2009 averaged 5.32 million barrels a day, up from 4.95 million in 2008. That’s an 8% increase.

Several weeks ago, a subscriber/client sent me a link to some information about the Bakken Formation in North Dakota. I checked it out. According to a 2008 report by the U.S. Geological Survey, Bakken could increase technically recoverable reserves by up to 4 billion barrels. Though newsletter and stock promoters often exaggerate the potential of the Bakken Formation, the recent EIA Outlook shows that Bakken does add significantly to production. The increases in production in both the Gulf of Mexico and North Dakota’s BakkenFormation show – yet again – how oil company investments in rapidly developing technology can increase both known reserves and current oil production.

As the economist Dr. Reisman reminds us, from its surface to its center – a distance of four thousand miles – the Earth is nothing but a solidly packed ball of natural resources. Even with the scientific and technological progress we’ve made during the 150-year history of the oil industry, we’ve succeeded in drilling in just a few places to a depth of only about seven miles – a pin prick.

Thomas Jefferson was born on April 13, 1743. That I missed Mr. Jefferson’s birthday is more than an oversight. It is an injustice. Thomas Jefferson’s birthday should be a bold, red-numbered day, just as Washington’s and Lincoln’s once were, and should be again. Washington was the father of his country, Lincoln its savior, and Thomas Jefferson was, in a very real sense, the author of America.

Like America itself, Thomas Jefferson was, first and foremost, a product of The Age of Enlightenment. In that age and in Jefferson’s mind, Reason was paramount:

“Fix Reason firmly to her seat and call to her tribunal every fact, every opinion . . . Reason and free inquiry are the only effectual agents against error”

In that spirit, he directed his nephew, Peter Carr, in 1787:

“Question with boldness even the existence of God; because if there be one, he must more approve the homage of Reason, than that of blindfolded fear.”

These were not just pretty words. Jefferson honored his Enlightenment philosophy through his own intellectual and productive achievements. Intellectual and productive independence were and are essential to a flourishing and happy life:

“If you always lean on your master, you will never be able to proceed without him. It is part of the American character to consider nothing as desperate . . .to surmount every difficulty . . . Americans are obliged to invent and to execute; to find the means within ourselves, and not to lean on others.”

As the key author of the Declaration of Independence and a strong supporter of James Madison’s Bill of Rights, Thomas Jefferson, as much as anyone, defined our rights as citizens of the United States of America. His theory of government, so eloquently summarized in the Declaration of Independence, was that every person possesses by nature certain “unalienable rights,” among which are “life, liberty, and the pursuit of happiness”. He did not say, nor does our Constitution say, that all men have the right to health care or houses, to be provided by others through the forced redistribution of wealth.

Importantly, and on the contrary, Jefferson said:

“Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated [in the Constitution].”

Even more to the point, Jefferson wrote in a letter to a friend, Joseph Milligan:

“To take from one because it is thought his own industry . . . has acquired too much, in order to spare others who . . . have not exercised equal industry and skill is to violate the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it.”

Jefferson understood, as so few do today, that individual rights and enlightened self-interest are essential to the harmony of human pursuits; that forced redistribution of wealth – whether by the government or a gang of thugs (Did I just repeat myself?) – is by definition a conflict of individual interests and an abrogation of human rights.

Thanks to Thomas Jefferson, for the first time in human history, we have words on paper – in our nation’s founding documents – that guarantee each person’s right to live for his own happiness and flourishing, rather than as a pawn of the government. It is now our responsibility to reclaim those words and give them back their true meaning.

Happy Birthday, Mr. Jefferson… and Thank You!

[For more on the life of Thomas Jefferson, see In Pursuit of Reason: The Life of Thomas Jefferson, Noble E. Cunningham, Jr., Ballantine Books, 1988. Available in paperback from Amazon for $13.50]

A few days ago, British Petroleum lost the Deepwater Horizon rig in the Gulf of Mexico. Lawsuits have been filed, and many are probably justified. The loss to BP, just in terms of oil not produced, is about $600,000 per day.

The Deepwater Horizon disaster will undoubtedly cause companies working offshore to amend their safety procedures. Who can afford not to learn from their own and others’ mistakes? Nevertheless, this disaster will give the environmental activists plenty of ammunition to rouse the hoi polloi for years to come.

Remember though, nearly everything you enjoy in your life is connected to oil. As Robert Bryce says in his new book, Power Hungry (Public Affairs, 2010), if oil didn’t exist, we’d have to invent it. Thanks to oil, and the bright boys and girls who work with it, we have shatterproof glasses, ultra-durable synthetic rubber tires, medical implants, bacteria-resistant refrigerators, HDTVs, and Smart Phones, just to name a few sophisticated, but commonplace, items. You can find hundreds of other things made of oil, almost without trying.

Did you know that almost a third of all global oil production comes from offshore drilling platforms? Or that multinational companies are mostly prevented from accessing the onshore oil reserves controlled by OPEC and government? That means that deep water exploration and drilling is what’s left for them to help meet a growing global demand for oil and the oil-related products we can’t live without.

There is no need to feel sorry for these companies, but realize that theirs is a demanding job, and that disasters like Deepwater Horizon are extremely rare. Unlike natural disasters, like Eyjafjallajökull, the recent volcanic eruption in Iceland, oil companies provide us with basic materials for an incredible array of products, enhancing virtually every aspect of our daily lives. The benefits that accrue to humanity from oil production far outweigh the cost of the occasional blowout or spill. Moreover, the victims of the Deepwater Horizon accident will recover damages from the culpable parties. That’s why we have a civil court system. So, if you’re tempted to join a crusade against offshore drilling, keep in mind that big oil and your high-tech 21st century lifestyle are joined at the hip.

That three-word epigram has informed Nick Murray’s written and spoken work for at least twenty years, forty is more likely. Now, Mr. Murray recommends The Rational Optimist, Harper Collins, 2010. The author, Matt Ridley, earned a PhD. in Zoology from Oxford and, for several years, was the science editor at The Economist. In 1999, he authored, and I read, the best-seller, Genome: The Autobiography of a Species in 23 Chapters. He is also the author of The Red Queen: Sex and the Evolution of Human Nature, The Origins of Virtue, The Agile Gene, and Francis Crick: Discoverer of the Genetic Code. Qualified, he definitely is.

According to Ridley, the story of optimism begins roughly 200,000 years ago, when early humans discovered the catallaxy: the ever-expanding possibilities generated in a society based on specialization and the division of labor. (Ridley attributes the term catallaxy to Nobel Prize winning economist F.A. von Hayek, but justice requires me to add that Catallactics was first the life’s work and term of Hayek’s teacher, the immortal Ludwig von Mises.) Anyway, Ridley is a master teacher and storyteller. He calls upon a cosmic range of material from historical, anthropological, genetic, and economic research to construct an inductive proof of his thesis that – in Nick Murray’s words – optimism is realism.

…did you know that 14,000 years ago, obsidian from Anatolia was being transported along the Euphrates through the Damascus Basin and the Jordan Valley? Seashells were going in the opposite direction.

…have you ever thought of farming as the extension of specialization and exchange to include other species than humans? Horses, oxen, and the genetic modification of wheat?

One of my favorite stories in the book is that of Borlaug’s genes. After WWII, utilizing the research of scientists like Cecil Salmon (on MacArthur’s staff in Japan) and Orville Vogel (Oregon State University), Norman Borlaug pioneered and promoted a genetically altered (the Rht1 gene), short-stemmed wheat in Mexico. By 1963, Borlaug’s varieties were 95% of Mexico’s wheat crop, and had increased Mexico’s wheat production six-fold in twelve years. Borlaug then lobbied for his new wheat varieties in Pakistan and India, two countries desperately in need of increased food supplies. By 1968, the wheat harvest in both of those countries exceeded storage and processing capacity. Grain was even stored in schools, and India issued a postage stamp to celebrate the wheat revolution. In 1970, Norman Borlaug received the Nobel Peace Prize. (In those days, that prize was still awarded to people who actually deserved it.)

According to Ridley, since 1900 the earth’s population has quadrupled. Land under cultivation has increased only 30%, but yields have increased 400%, and the total crop harvest has increased 600%. Doing the math, per capita food production has increased 50% – thanks to genetic science and fertilizer derived from fossil fuels. (I’m not making that up; it’s in the book.)

Ridley goes on to tell how Bishop Wilberforce was aided in the abolition of slavery in Britain by the industrial revolution. He tells how (from 1750 to 1850) the entrepreneurial owners of British cotton mills overwhelmed the colorful calicos of India, despite paying a wage five times greater and shipping their wares over 13,000 miles. Even slave power couldn’t compete with coal-fired steam.

“The list of innovations achieved by the pharaohs,” Ridley writes, “is as thin as the list of innovations achieved by British Rail or the US Postal Service.” On the other hand, “…the Philistines invented iron; the Canaanites the alphabet; and their coastal cousin, the Phoenicians, glass.” Innovation and progress are the necessary and direct results of specialization and exchange, and the absence of overbearing government.

According to Ridley, the human desire to exchange ideas is genetically encoded; like nest building in birds. Unlike bird’s nests, though, ideas beget other ideas, bigger and better. There are no limits to what we human beings can achieve through the catallaxy, when left free to do so. Ridley offers some exciting and surprising possibilities for the 21st century.

Every investor, financial advisor, teacher, professor, journalist, and policymaker should read this book. So should every American concerned about the future. (359 pages of text and 59 pages of endnotes and references. Available at Amazon for $16.72.

“We see in almost every part of the annals of mankind how the industry of individuals, struggling up against wars, taxes, famines, conflagrations, mischievous prohibitions, and more mischievous protections, creates faster than governments can squander, and repairs whatever invaders can destroy.”

Because I am a confirmed optimist, some of you may think that I don’t understand how bad things are out there. I assure you that I do, and this article is offered in evidence.

According to Neil Barofsky, special investigator general for TARP (Troubled Asset Relief Program), the United States has now spent approximately $3 trillion on programs designed to heal our financial system and replace jobs lost during the recent financial crisis and recession.

As I mentioned a couple of weeks ago, the European Union (EU) has created a loan fund of almost €1 trillion (Euros). The fund’s purpose is to rescue euro zone countries like Portugal, Italy, Greece, and Spain – unfortunately, but accurately, referred to in the media as “the PIGS”. The European Central Bank (ECB) has announced that it’s ready to buy both government and private bonds “to ensure depth and liquidity” in the market for deadbeat debt. The Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank, and the Swiss National Bank have all agreed to help facilitate this bailout. This is a spendthrifts’ consolidation loan, complete with austerity mandates that, in my opinion, will ultimately lead to violence. In Europe, I believe that that’s the good news.

Just as in our mortgage meltdown, banks are at the epicenter of the current European debt and currency crisis; and German banks are some of the most highly leveraged institutions in the world.

I could go on, but I think the point is made. Ballooning budget deficits, already out of control prior to the orgy of bailout and stimulus spending, are beyond ineffective; in my opinion. (I have intentionally omitted the $100 trillion of unfunded liabilities associated with Social Security and Medicare, and the truly negative budget implications of Obamacare that don’t kick in until 2014. What would be the point?) We should learn from the poor Europeans, whose cradle-to-grave entitlement dogma is rotting their once-great civilizations.

I get all that, and I understand why people are concerned.

Nevertheless, I remind you that some American non-financial corporations have more cash on their balance sheets than at any time in more than fifty years. That does not mean that there are no opportunities for businesses to expand and profit; there are many. Rather, with interest rates on savings still less than 1%, increasing corporate cash may be a measure of the irrationality and unpredictability of government policy. Prudence trumps profit.

Last week, I suggested that you read The Rational Optimist: How Prosperity Evolves, by Matt Ridley. That recommendation stands, and will stand; it’s an important book, and one that is destined to become a classic. It reveals that throughout human history, voluntary exchange in the marketplace has been the golden goose of human progress. Exchange is to human nature as nest building is to birds – it’s what we do. Over the past two centuries, exchange has been greatly facilitated by advancements in transportation and communication technologies. Progress has gone viral. Today, American business represents humanity performing its highest functions at an extraordinary level of proficiency; it is the most rational, most innovative, most life-serving, most achievement oriented, and the most forward-looking institution in the history of the world.

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